Washington Mutual removes CEO Killinger

Nation's largest savings and loan allowed too many risky mortgages

Sara Lepro, Associated Press

Published 4:00 am, Tuesday, September 9, 2008

Washington Mutual Inc., ravaged by losses from sour mortgages, removed Kerry Killinger as chief executive of the nation's largest savings and loan Monday, adding him to the growing list of banking bosses ousted by their boards.

Killinger, 59, is being replaced by Alan Fishman, the former president and chief operating officer of Sovereign Bank and president and CEO of Independence Community Bank.

Also Monday, Washington Mutual said that it has entered into a memorandum of understanding with the Office of Thrift Supervision concerning aspects of its operations.

Washington Mutual has committed to provide the office with an updated, multiyear business plan and forecast for its earnings, asset quality, capital and business segment performance. The plan will not require the company to raise capital or increase liquidity, the bank said.

The thrift's shares fell 15 cents, or 3.5 percent, to close at $4.12, after dropping as much as 24 percent earlier in the session. Its shares have fallen 90 percent since early July of last year, right before the rapid erosion in the credit markets.

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Battered by rising mortgage delinquencies and defaults, and by the sinking value of its mortgage portfolio, the company has lost nearly 70 percent of its market value this year.

Killinger, stripped of his chairman title in June, became CEO of the Seattle thrift in 1990 and built Washington Mutual into one of the country's largest banks. But with a heavy focus on subprime and option adjustable-rate mortgages - the types of mortgages at the heart of the housing bust - its losses began to mount and its shares plummeted, sparking an outcry from shareholders.

The board's splitting of the CEO and chairman roles in June was an effort, at the urging of shareholders, to improve corporate governance. At Washington Mutual's shareholder meeting in April, a nonbinding resolution calling for the installation of a nonemployee as board chairman passed with 51.5 percent of the votes.

But Killinger - who received compensation valued at $14.4 million in 2007 - held on to his post as CEO, even as the list of other top banking executives shown the door continued to grow.

After backing Killinger for so long, the board's sentiment finally changed.

"The board and Kerry mutually agreed that this was the right time for Kerry to leave the company," said spokesman Brad Russell.

The thrift's troubles largely stem from rising delinquencies among its "option" adjustable-rate mortgage loans. The bank stopped originating the negative amortizing loans, also called option ARM loans, in June. Option ARM loans offer very low introductory payments and let borrowers defer some interest payments until later years.

Washington Mutual became one of the first retail banks to seek outside cash in the wake of the credit crisis when it agreed to sell equity securities to an investment fund managed by TPG Capital and to other investors this spring, raising $7.2 billion in fresh capital.

In July, the bank reported a $3 billion second-quarter loss - the biggest quarterly loss in its history - as it increased its loss reserves to more than $8 billion to cover bad loans.